IASB Adds Phase Two of IBOR Reform to Its Work Plan

ByRegulatory News

August 15, 2019

IASB (or the Board) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—interbank offer rate (IBOR) reform—to its work plan. Phase one of the project focuses on financial reporting issues in the period before the current interest rate benchmark is replaced with an alternative rate, while phase two focuses on potential issues that might affect financial reporting once the existing rate is replaced with an alternative rate.

As part of the work on the interest rate benchmark reform, the technical staff at IASB has started to analyze the issues to be considered as part of phase two. The Board will start deliberations on these matters during the third quarter of 2019. Under phase one of the interest rate benchmark reform, IASB, in May 2019, had published an Exposure Draft that proposes exceptions to specific hedge accounting requirements in IFRS 9 and IAS 39. The Board met on July 25, 2019 to discuss the staff’s analysis of feedback on the phase one Exposure Draft, which proposes amendments to IFRS 9 and IAS 39. The Board is considering comments received on this Exposure Draft and aims to finalize the amendments as soon as possible.

Interest rate benchmarks such as IBORs play an important role in global financial markets. These benchmarks index a wide variety of financial products worth trillions of dollars and other currencies, ranging from mortgages to derivatives. Some jurisdictions have already made clear progress toward replacing existing benchmarks with the alternative, nearly risk-free rates. This work has, in turn, led to uncertainty about the future of existing interest rate benchmarks, which may affect financial reporting by companies. In 2018, the Board noted the increasing level of uncertainty about the long-term viability of some interest rate benchmarks and decided to add a project to its agenda to consider the financial reporting implications of the reform. In its outreach with stakeholders, the Board has identified two groups of accounting issues that could have financial reporting implications. These are:

Pre-replacement issues (addressed in phase one)—These are issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative risk-free rate.

Replacement issues (addressed in phase two)—These are issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative risk-free rate.